You can secure a company loan after declaring bankruptcy, but it won’t be easy, at least not in the early aftermath: your financing options will be limited, and your interest rates will be higher.

While good firm financials can boost your chances of approval with bankruptcy on your record, time is your most powerful ally. Bankruptcies, depending on the type, remain on your credit report for seven to ten years. Bank loans are usually out of the question for business owners who have a bankruptcy on their credit score.

Bankruptcy is a legal procedure that allows you to obtain relief from your creditors. If you are unable to pay your payments and other options, such as company debt consolidation, have been exhausted, bankruptcy allows you to reorganize or erase some of your debt. Because bankruptcy occurs only when you are unable to pay your bills, it has a significant impact on your credit. Your credit score will suffer severely, and the bankruptcy will remain on your record for seven to ten years.

Chapter 7 bankruptcy, commonly known as liquidation bankruptcy, is the most common and fastest type of bankruptcy. When you file for Chapter 7 bankruptcy, the trustee will sell all of your assets to settle your company’s debts. Companies that go through Chapter 7 frequently go out of business since these assets are critical to running your organization.

To be qualified for Chapter 7 bankruptcy, your business must pass a means test, which examines your income and spending to determine whether you are actually unable to repay your creditors.

Going through a business bankruptcy is a big deal, and there are serious consequences that you need to consider before filing.

• Damaged credit. Your credit score will drop in the wake of bankruptcy, often making it hard to get loans in the future. Record of bankruptcy can stay on your report for up to 10 years.
• Loss of assets. Depending on the type of bankruptcy, the process may involve selling off some or all of your company’s assets, making it difficult to keep running.
• Some debts will remain. Bankruptcy doesn’t automatically eliminate all of your debts. You’ll still owe money, and some priority debts must be repaid, including tax debts.
• Cost. Between miscellaneous fees and attorney costs, bankruptcy can cost anywhere from $900 to $6,000 or more.

If you’ve declared bankruptcy, getting a loan for your business will be difficult. Here are some tips to follow that may give you the best chance of qualifying.

Wait

When you go through bankruptcy, it will tank your credit score and stay on your credit report for years. Lenders will see you as a risky creditor, making it harder for you to access credit while the bankruptcy remains on your credit report. Most lenders won’t even consider approving a business that has gone bankrupt in the past three to seven years.

Waiting gives you time to take the necessary steps to show lenders that you are able to successfully manage a loan down the road.

Keep debt to a minimum

One factor contributing to going through bankruptcy is taking on too much business debt. Lenders will be very wary of a company with a lot of debt, especially if it went through bankruptcy recently. They could perceive it as the start of a repeating cycle. Plus, your credit score will lower the more debt you have.

Read Also: Are Non Profits Eligible For Small Business Loans?

Try to avoid debt as much as possible, and when you are eligible for a loan, offer collateral to secure the loan if you can. That will help you have the best chance of getting a loan at the best rate.

Write a business plan

Putting together a business plan to present to lenders can help if you’re on the cusp of being able to qualify for a loan after bankruptcy.

Your business plan should be as clear and refined as possible. You want to show lenders that you know what you’re doing and that you have a clear plan for what your company is doing and how it will make money. Drawing a straight line from getting the loan to deploying those funds and using that capital to produce the revenue you’ll use to pay off the debt can also be helpful.

Be realistic. Don’t go in with wild overestimates of your revenues and underestimates of costs. Also don’t be afraid to note risks and problems your company could face and be ready to explain how you’ll overcome them.

Also acknowledge the bankruptcy on your record and write a bankruptcy statement. Describe what led to your bankruptcy and the steps you’ve taken to ensure it won’t happen again.

Find a cosigner

A cosigner is a third party that agrees to take responsibility for your debt if you default on the loan. It reduces the lender’s risk, making them more likely to approve your application.

On top of finding a cosigner, most lenders will also demand a personal guarantee from the company’s owners, making you personally liable for paying off the debt.

Of course, the drawback is that you need to find someone willing to put their money on the line for your benefit. That person also needs to have strong credit to help support their claims that they’ll take over payments if necessary.

Technically, you can get a Small Business Administration loan after filing for bankruptcy. But finding a lender willing to fund your loan will be difficult. While the SBA doesn’t exclude businesses based on bankruptcy history, approved lenders are largely free to set their own lending criteria. Most online lenders that offer SBA loans tend to require credit scores of 600 or higher. A bankruptcy will likely push your score below that threshold so, at a minimum, you’d need to lift your score before you could be approved.

Going bankrupt makes it extremely difficult to obtain loans in the future. It’s likely that finding a suitable lender would take years, and even then, you’ll face extremely expensive interest rates and loan fees.

Be patient as you work to rebuild your credit following bankruptcy. It may take some time, but you will be able to apply for business loans again in the end.